Book Review: The Crowdfunding Revolution

This is a guest post from Dan Marom, co-author of The Crowdfunding Revolution. In this series of posts about social media books, I invite the author to share something about themselves and why they wrote the book, and what in the book might be of particular interest to association or nonprofit audiences.

Maddie’s Take: I am FASCINATED by the disruptive power of crowdfunding and its sister field, social lending [I’ve been looking into sites like Lending Club and participating in Kiva – anyone expert in the field want to write me a post about those?] so I find this book incredibly interesting. And with a description like this– “This groundbreaking guide explains how the explosive growth of connectivity is obviating human-to-human networks and centralized planning of capital allocation—and describes how crowdfunding can be used to tap into a “collective intelligence” for far superior results.” –which feeds my Humanize-ing obsession, how could I not recommend this? More: “Organic. Transparent. Decentralized. This is crowdfunding. This is the future.” OH YES.Verdict (Buy, Borrow, Skim, Pass?): BUY – it’s awesome.

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Social innovation refers to new strategies, concepts, ideas and organizations that meet social needs of all kinds — from working conditions and education to community development and health — and that extend and strengthen civil society. Social media and the internet has been a big supporter of social innovation over the past couple of years, witnessing the creation of powerful virtual communities dedicated to a particular cause or initiative. We’ve seen the power of these communities in action, ranging from the Arab Spring and political uprisings and protests in the Middle East to animal-lovers intercepting a truck carrying 1500 dogs bound for a slaughterhouse in China. Social networks create a new kind of access, where individuals in disparate geographical areas can come together in pursuit of a particular goal.

Humans are social and emotional creatures and are intrinsically drawn to goals and pursuits to whom they feel connected to. That is how social innovation is actualized. For social innovation, tools like Twitter and Facebook can fastrack an idea or concept to fruition by pooling together ideas and resources from a large group of people. Yet often times, ideas and resources need money to come to fruition. This is where crowdfunding becomes an agent for change, democratizing social innovation and change by giving individuals the opportunity to put forth small donations for a cause they believe in. The beauty of this model is that it can be applied to almost any cause or industry.

Over the past year, we have seen forward-thinking individuals create crowdfunding platforms and projects in pursuit of solving a social problem and moving society forward. In the next few minutes, I will highlight a few notable projects and platforms where individuals have harnessed the power of the crowd to bring about social change and innovation.

Civic and Community Projects

For social innovation at the civic level, crowdfunding helps engage citizens in public discourse to understand what initiatives are important to them. I believe civic crowdfunding will play an important role in the public sector, allowing individuals to directly engage with municipalities and support civic engagement. This is particularly important because it allows citizens to not only invest in their communities, but they can also volunteer time and other resources to a cause that will help their friends and neighbors at the local level.

By sourcing ideas from their citizens, the public and private sector can ensure all the issues important to their citizens are being addressed and potentially can match or donate funds towards specific projects. Crowdfunding is one of the most viable alternatives for financing urban projects, insofar as members of the community can become drivers for change when the government does not have the available resources.

One of the best examples comes from the UK crowdfunding platform Spacehive where a cash-strapped community was having trouble raising money for a community center. The goal of the project was to reverse the cycle of deprivation in the town by building a central hub for a learning programme four days per week, enterprise workshops, nightly events for children and young people, luncheon clubs for older people; community fitness sessions, and social parties. Through a crowdfunding campaign on Spacehive, the center raised £792,021 for the construction, furnishing, decoration, and landscaping of the center. This is an excellent example of the potential for communities to come together and pool their time and resources to solve an issue they care about. We are seeing these types of programs in a global scale, with crowdfunding platforms like Neighbor.ly facilitating civic and community projects to propel society forward. At the community level, crowdfunding will be a great way to support local businesses and entrepreneurship because everyone in the community has a shared interest of making it a better place.

Microfinance

One of the central benefits of crowdfunding is social media and web based platforms serve as a modicum for communication, allowing individuals to easily access capital regardless of where they are geographically situated. For individuals in developing nations, crowdfunding is a viable option insofar as the internet and mobile phones allow entrepreneurs to communicate with potential investors without the cost of travel. Through the internet, microfinance increases its depth of outreach, a concept which Kiva.org has demonstrated over the past several years by combining microloans with crowdfunding. While the model is currently loan based, the future could bring equity based models, where investors receive equity for supporting small and medium sized businesses. In addition to funding businesses, investors could also assume more of an entrepreneurial role by becoming part of the business and assuming operational responsibilities. With improved accessibility through mobile phones and social networking, the ease of information sharing will revolutionize not only the way loans are given, but the assumed roles and responsibilities between the lenders and entrepreneurs.

Charitable Giving

For charities around the world, the next few years will witness the democratization of philanthropy. Rather than donating a check to a large-scale charity or foundation where senior executives are pulling in six-figure salaries, donors will have a better understanding of exactly where their money is going and for what purpose. Research shows that individuals who already follow particular charities on social networking sites like Facebook or Twitter are likely to discuss the charity with friends and family, calling upon the power of the crowd to reach more potential donors, but also supplying those donors with information sources about the cause and how that money is going to be used. Research from Harris Interactive also indicates that many people feel a sense of “personal responsibility” for making the world a better place. Donation-based crowdfunding satisfies that sense of personal responsibility by allowing individuals to understand precisely how their donated funds will be used.

Crowdfunding sites like Indiegogo and Donate.ly offer charities and foundations an opportunity to discuss their cause, talk about how the money will be used, and even offer rewards and perks for donating. While we know charitable giving fulfills intrinsic desires to help others, utilizing perks and rewards systems is an effective way for inspiring individuals to give on a more frequent basis.

Moving forward, I believe 2013 will be a great opportunity for all people (whether you be a volunteer, entrepreneur, potential investor, policymaker, or donor) to explore the ways crowdfunding can move our societal goals forward. As crowdfunding becomes more commonplace as a fundraising mechanism, we will all be presented with opportunities to help each other and the world. Take advantage and learn how you can help. And above all, engage!

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Dan Marom is an acclaimed author and leading thought leader in the crowdfunding field. In 2010, he co-authored a pioneering book on crowdfunding titled The CrowdFunding Revolution (with Kevin Lawton). A second edition was published by McGraw-Hill in 2012. As a Ph.D. candidate in Finance at the Hebrew University of Jerusalem, Israel, Dan’s research focuses on crowdfunding and entrepreneurial finance.

Dan I look forward to reading the book–crowdfunding is definitely an exciting revolution in philanthropy! However I do think using the £792,021 Glyncoch community center example is atypical and perhaps a tad misleading. It’s my understanding it took this community 7 years to raise those funds. Individual donations came in at just £2,361–much more typical for these kinds of sites. The rest came from local and government grants–grants that get written and reviewed the old fashioned way…on paper. The community also engaged celebrity tweeter Stephen Fry to drive traffic to the site (his tweets reach 4 million followers), which is another technique several other charities have used successfully to raise the profile of a cause. My point is that while crowdfunding can be an important component of fundraising and cause visibility, it doesn’t replace “boots on the ground” tools like grantwriting, PR and community outreach.

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The SocialFish blog is the longest established industry social/digital blog for associations and nonprofits. We have been thinking and writing--and inviting guests to share their thoughts too--about the effect of the digital revolution on how we work since we started this blog in 2007. Needless to say, every author's opinions are their own.

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